Joy Leads to Overconfidence – and a Simple Remedy

46 Pages Posted: 12 Jan 2012

See all articles by Philipp Koellinger

Philipp Koellinger

Vrije Universiteit Amsterdam

Theresa Treffers

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences

Date Written: January 3, 2012

Abstract

Overconfidence has been identified as a source of suboptimal decision making in many reallife domains, and it often has far-reaching consequences. Here, we demonstrate a causal mechanism that leads to overconfidence and show a simple, effective remedy for it in an incentive-compatible experimental study. We show that joy induces overconfidence if the reason for joy (an unexpected gift) is unrelated to the judgment task and if participants were not made specifically aware of our mood manipulation. In contrast, we observed wellcalibrated judgments among participants in a control group who were in their resting mood. Furthermore, we found well-calibrated judgments among participants who received the joyful mood induction together with questions that forced them to reflect on their current mood, its cause, and the (ir)relevance of its cause to our judgment tasks. Our findings suggest that being aware of one’s positive mood and the reason for that mood can be an effective shortterm remedy for overconfidence.

Keywords: judgment, mood, overconfidence, joy

JEL Classification: C91, D03

Suggested Citation

Koellinger, Philipp and Treffers, Theresa, Joy Leads to Overconfidence – and a Simple Remedy (January 3, 2012). ERIM Report Series Reference No. ERS-2012-001-STR, Available at SSRN: https://ssrn.com/abstract=1982989

Philipp Koellinger (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

HOME PAGE: http://www.philipp-koellinger.com

Theresa Treffers

Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences ( email )

Den Dolech 2
Eindhoven
Netherlands